–Quick prediction for the next two years

Uncategorized 1 Minute

The debt hawks are to economics as the creationists are to biology.

Here is a quick, overly simplistic prediction about what is likely to happen in the next two years. If you disagree (or even agree), feel free to add your own predictions.

1. The Democrats, fearing the weak economy will cost them the House and Senate, urgently will try to stimulate the economy before November.

2. However, stimulating the economy requires federal spending and/or reduced taxes, both of which add to the federal debt. Republicans, not wanting the economy to recover before the November elections, will object to any increases in the federal debt, falsely claiming it’s “unsustainable” and “our children will pay for it.”

3. Every stimulus plan put forth by the Democrats will be met with the threat of a Senate filibuster, plus objections by the media, the Tea Party and all others who have been hypnotized by the debt hawks.

4. The Democrats, paralyzed with fear about the federal debt, then will talk about increasing federal taxes on the “rich,” so as to be revenue neutral. This will add to the Democrats’ stigma as the “tax and spend party.” Small business owners, the primary economic engine in America, will find themselves defined as “rich,” so will become even more reluctant to hire and invest. Worse, because revenue neutral plans do not add money to the economy, they will not prove to be stimulative.

5. The economy will not recover significantly, and may even regress. The voters and the media will blame the Obama administration for not creating more jobs, but will offer no non-debt solutions, as there are none. Voters, wanting stimulus without deficits (in other words, magic), will vent their frustration on incumbents, giving Republicans enough representation in both Houses to stifle any Democratic initiatives, but not enough representation to advance Republican initiatives. Further, since the Republicans have been vociferous about deficits, they will have left themselves no way to stimulate the economy.

6. Within two years, President Obama will blame the lack of economic growth on Republican recalcitrance, thereby setting the stage for a Democratic comeback in 2012.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity

Published by Rodger Malcolm Mitchell

MBA Northwestern, business turnaround expert, economist

Published

9 thoughts on “–Quick prediction for the next two years”

  1. I think it is a myth that business owners stop hiring when they are taxed more. As long as there is any upside, people grow their businesses.

    You have to tax at 100% to make them stop.

    But you are right that taxing to pay for stimulus nullifies the stimulus.

    Like

    Reply

  2. Small business owners can have a close relationship with their business finances. Often, they put personal money into the business, to grow the business. If they have less personal money available, they’ll be less apt to put money into their business.

    All this is generalization, of course, and every case is different. But it’s certain that some small businessmen will invest less in their business, if they are taxed more. How many? No one knows. But this is 100% positive: All taxes hurt the economy.

    Rodger Malcolm Mitchell

    Like

    Reply

    1. I don’t dispute that all taxes hurt the economy (unless they are social taxes, like taxes on booze).

      But I don’t see an increase in taxes stopping small business owners from hiring. For a massive tax increase of 10% to wipe out a possibility to hire a person making 50k a year, the “small business owner” must pay 500k a year in taxes, which means that he takes home 1.5M a year.

      For me this means that the “small business” generating his income is strong enough to hire people.

      Plus, let’s not forget that if a person is hired, she is expected to generate more than her salary in additional profits, so this logic hardly applies anyway. You could argue that increased taxes make people more likely to hire productive workers to make up for the loss.

      Like

      Reply

      1. Piotrek,

        Your logic is somewhat baffling. First off, there are many other expenses involved in hiring a new employee than just base salary. There is training, there may be benefits, there may be additional insurance costs, payroll tax, extra infrastructure (tools, desks, computers. supplies etc.)as well as the managerial time and expense involved in taking on a new employee.

        In addition FWIW, a business owner taking home 1.5M is likely paying more than 33% in taxes. Don’t forget, state and city taxes, FICA taxes, sales taxes, excise taxes, real estate taxes on his primary residence etc. Depending on what part of the country she lives in, her tax burden could easily be 50% of her income all things considered.

        At some level of taxation any individual is faced with the question of whether it is worth expanding a business if the ultimate rewards are taxed away and just as important she must make a judgment as to what effects taxes will have on the general economy which in turn will effect the sales and profitability of her business going forward.

        To simply state that a business owner can technically afford to hire an employee because her profit is higher than the base salary of hiring a new employee is not how actual business owners make this decision at all.

        Like

        Reply

  3. The Dems will make stimulus noises this fall, to no avail. If the Reps take over the House, gov’t will get nothing accomplished for two years, and the Reps will take the White House in 2012. The unemployment rate will come down as the long term unemployed go off the roles and become homeless. If the Dems keep control of the House, something will get done, but not enough. The Reps will blame the economy on the failure of the Obama administration, and will probably take control of Congress and the White House, to similar effect as above.

    Like

    Reply

  4. I don’t see Dems even raising the issue of another stimulus. It is a political non-starter. They might not care about US too much, but they sure are shrewd politicians.

    Like

    Reply

Leave a comment